Shenwan Hongyuan Securities·2025-11-18 04:45Core Viewpoints - The banking sector is at the beginning of a long-term recovery cycle, with current valuations around 0.7 times PB, significantly improved from the low of 0.49 times PB in 2018 [3][9] - The low interest rate environment is a key driver for capital inflow into dividend-paying stocks, with the banking sector offering a dividend yield of approximately 4.3%, which is over 250 basis points higher than the 10-year government bond yield [12][14] - The expectation for 2026 includes a stabilization and potential slight increase in net interest margins, driven by central bank policies aimed at supporting banks [3][4] Investment Highlights - The banking sector is expected to benefit from a new cycle of stable profitability, with long-term capital inflows continuing to support the sector [3][30] - The focus should be on leading banks and quality regional banks, as they are likely to outperform in terms of valuation recovery and profitability [3][30] - The report emphasizes the importance of high provisioning and capital adequacy for banks to navigate through economic challenges [4][30] Market Dynamics - The banking sector has seen a shift in risk perception, with systemic risks significantly alleviated, allowing for a more favorable outlook on bank valuations [27][28] - The report highlights that banks have actively managed their asset quality, with significant write-offs contributing to improved financial stability [27] - The structural changes in credit allocation are expected to resolve existing issues, with a focus on sectors that contribute positively to economic growth [25][27] Future Expectations - The banking sector is anticipated to enter a new phase of stable return on equity (ROE), with steady profit growth already being validated [30] - The report suggests that the valuation of banks is likely to trend towards 1 times PB, reflecting a return to more normalized risk assessments [23][28] - The potential for increased capital inflows from institutional investors, particularly insurance funds, is expected to further support the banking sector's recovery [3][12]